Some of Worcester's 'free cash' is already spoken for

The state Department of Revenue has certified the city's so-called “free cash” for the previous fiscal year at $4.28 million.

That money will be available for appropriation this fiscal year, though 50 percent is supposed to be set aside to build the city's financial reserves, as called for in the city's Five Point Financial Plan.

The City Council recently amended that financial plan to dedicate 30 percent of available free cash, beginning next fiscal year, to help finance a newly created trust fund to address the city's $656 million liability in financing its post-employment health benefits for current and future municipal and public school retirees.

The amended financial plan commits the city to allocating $5 million in next fiscal year's municipal budget as an initial payment into the trust fund.

The city manager traditionally submits his recommended supplemental budget appropriations to the City Council before it sets the tax rates each year.

No date has been set yet for when the City Council will hold its annual tax classification hearing and set the tax rates for this fiscal year.

Free cash is excess revenues over expenditures from the previous fiscal year and upon certification from the state Department of Revenue is available for appropriation in a subsequent fiscal year.

In addition to the $4.28 million in free cash that has been certified for city's general fund, the Department of Revenue also certified $2.3 million in free cash for the city's water operations and $2.1 million for sewer operations.

Both utilities operate as enterprise funds: They are not funded with tax-levy money and instead pay their expenses with the revenues they generate through water and sewer fees.City Auditor James A. DelSignore said the free cash for those enterprise funds will also be available for spending this fiscal year.

But that good financial news for the city is being tempered somewhat by ominous clouds that are building regarding the state's finances.

State revenues for this fiscal year are trending well below budget benchmarks, to the tune of about $256 million, or about 3.8 percent below their revenue benchmark expectations, as of Oct. 31.

In comparison, through the same period a year ago state revenues were only about $20 million below benchmark.

City Manager Michael V. O'Brien said that if the current revenue shortfall trend is annualized over the entire fiscal year, the shortfall for the state would equate to $700 million.

He said such a dramatic shortfall would likely require midyear “9-C” cuts in the city's budget for this fiscal year and significant budget cuts next fiscal year as well

Mr. O'Brien noted that city-side municipal services are supported annually by $40 million of unrestricted state local aid.

He said city-side funding has already been radically reduced by some 35 percent, from the $62 million the city received in unrestricted local aid funding in 2008. He said the allotment the city received this fiscal year is equivalent to the amount it received from the state in 1988.

In addition, the manager said the city's public schools are funded at more than $200 million by all state sources, including Chapter 70 Education Aid.

As a result, Mr. O'Brien said he intends to be “extremely cautious” and carefully review all budgeted personnel requests. He said he will be filling positions on a case-by-case basis.

“It is very clear that our worlds are economically tied — as the commonwealth goes, so goes the city,” Mr. O'Brien said. “Clearly, we would need to take additional actions if the commonwealth's revenues continue to fall well below their benchmarks and that reality forces them to take actions to receive local aid in either fiscal 2013 (this fiscal year) and/or fiscal year 2014.”